United States: Is Your Employee NDA Weak?

We live in a world of "leaking" information and the
automotive industry is not immune. Automotive companies go to great
lengths to protect their confidential information (including
innovations). But do they have the legal means to prevent
disclosure of information by employees?

Drafting and enforcing NDAs requires considerable thought, care
and continual maintenance. It is an area rife with risks and traps;
and employers who believe they can "gag" their employees,
by simply requiring them to sign a broadly worded agreement with
heavy penalties, may be in for a rude shock.

The problems are many. First, this is an area that is primarily
enforced by state law, and the states are far from uniform in
viewing the enforceability of NDAs. Thus, a non-disclosure
provision enforceable in one state may be struck down in
another. Automotive companies often operate in multiple
states and so they will have to ensure it is compliant with the
laws of all those jurisdictions.

Most jurisdictions will decline to enforce an overbroad
definition of "confidential information." To that end,
an Illinois court refused to enforce an NDA that sought to
protect against the disclosure of information concerning "any
methods and manners by which Employer leases, rents, sells,
finances, or deals with its products and its
customers." (Trailer Leasing Co. v. Associates
Commercial Corp., 1996 WL 392135, at *1 (N.D.Ill. July
10, 1996)).

Similarly, an employer's attempt to seal an employee's
lips forever will find little sympathy in the courts. A Virginia
court invalidated an NDA on two grounds. It found that the employer
had attempted to preclude an employee from disclosing any
information concerning the business of the employer to any
person. Thus, the prohibition was "not narrowly tailored to
protect the legitimate business interests" of the
employer. The court explained that the provision was so
overbroad that, as written, it prohibited the employee from telling
a neighbor anything about the employer –
including information that was not proprietary in nature or worthy
of confidence – for the rest of her life.
(Lasership, Inc. v. Belinda Watson and Midnite Air
Corp., d/b/a Midnite Express, 79 Va. Cir. 205 (1979)).

Some state courts (e.g., Georgia, New York, and
Illinois) may "blue pencil" a defective agreement; that
is, excise the offending provisions and allow the remainder of the
agreement to be enforced. But even if an employer finds
itself in one of those jurisdictions, there is no guarantee the
judge will undertake that exercise as he/she may find the offending
portion key to the whole agreement and, therefore, strike the
entire NDA.

Recently a court in North Carolina invalidated an NDA on a
different basis that, if followed by other courts, could have
far-reaching consequences. The court invalidated the entire NDA
because there was no additional "consideration"
(i.e. the employee gave up his/her rights but received no
additional compensation or other item of value). (Roundpoint
Mortgage Co. v. Florez, 2016 NCBC 17 (Feb. 18, 2016)).

There are yet other traps for the unwary. This year a federal
appeals court struck down a "confidentiality agreement"
that sought to preclude an employee from sharing "private
employee information (such as salaries, disciplinary action,
etc.)" because the restriction unlawfully impinged on the
employees' rights, under Section 7 of the National Labor
Relations Act, to discuss such matters. (Banner Health System
v. N.L.R.B., 2017 WL 1101104 (D.C. Cir. 2017)).

Finally, even if an employer crafts a compliant NDA it will lose
its power to enforce the NDA if it is lax in the treatment of
confidential information. A written agreement does not supplant the
need for sound business practices which safeguard such secrets and
prevent disclosure. Moreover, an employer will enhance its
chance of enforcing an NDA by periodically reinforcing the need for
confidentiality, conducting regular training on the proper handling
of confidential information, etc.

Staying on top of developments in this area and carefully
tailoring NDAs will help to maintain the secrecy of what is often
an automotive companies' very lifeblood: confidential
information.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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Congress established the Health Care Industry Cybersecurity Task Force in the Cybersecurity Act of 2015 to address the challenges the health care industry faces when securing and protecting itself against cybersecurity incidents.

On June 12, 2017, Nevada Governor Brian Sandoval signed into law SB 538 ("Nevada SB 538"), which requires operators of websites and online services to provide notice to Nevada residents of their practices relating to the collection and disclosure of personally identifiable information.

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